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As artificial intelligence (AI) starts what could well be a fourth year of market dominance, investors are questioning the massive capex spending that is being directed to it. Will it pay off? Carrie King, Global CIO of BlackRock Fundamental Equities, addresses this question in the most recent Equity Market Outlook, where she encourages patience but also cites early indications of potential AI rewards in recent company rhetoric.
Ms. King joined host Oscar Pulido on The Bid podcast to dig into this hot topic and more. Here we feature excerpts of their conversation with answers to five key questions for 2026.
I’m sanguine about the stock market in 2026. Earnings are based on fundamentals, and these look very strong. Equity multiples are causing consternation for some market observers. At 22x earnings, they are at the same level as the peak of the dot-com bubble. That didn’t end well, but let me dispel any comparisons or concerns.
First, high price-to-earnings (PE) multiples in and of themselves do not derail bull markets. Second, if you look at the quality of companies today, they’re deserving of a higher multiple. Quality has never been higher. And if we compare companies today to the dot-com bubble era, we think there’s an adjustment to the PE multiple to account for that higher quality. We’d place the PE multiple closer to 17x earnings, which is actually the long-term average. Set alongside consensus estimates for earnings per share growth in the mid-teens for 2026 (an above-average growth rate), I think that’s a very strong set-up for equity returns.
Going back to November 2022 when ChatGPT first burst onto the scene, the first order of business was to invest in what was most obvious — let’s call it the picks and shovels — the semiconductor and semi cap equipment companies. Can the leading companies in these categories that have seen exponential revenue growth, margin expansion and share price appreciation repeat that magnitude of change? I don’t think that’s on deck.
Last year, however, we saw AI enthusiasm spread beyond the picks and shovels to the data centers and the data center buildout, which drove shares of utilities, power companies, industrials, and companies involved in lighting, air conditioning and components.
So, will AI dominate the conversation in 2026? Yes, I think it will. But I believe the beneficiaries will be a different bucket of companies, or there will be an additional bucket of companies to consider. We may go from focusing on the capex, the spending and the revenue to the cost savings, the efficiency gains and the operational optimizations.
U.S. companies (as represented by the S&P 500) appear poised to achieve mid-teens earnings growth again in 2026 but the composition of that earnings growth may look different from prior years.
We may see a widening gap between the Magnificent 7 companies and the other 493. We could see the Mag 7 earnings growth rate decelerating to about 20% in 2026 — still extremely strong and healthy, but below the peak of 37% in 2024. Meanwhile, the other 493 could see an acceleration that takes earnings per share (EPS) growth to the double-digit level from either declining or low single digits in the past couple of years.
Overall, we believe strongest growth is likely to come from technology, industrials and materials companies. These benefit from a cyclical tailwind from rate cuts and re-mapping of supply chains. We are also seeing strong order book growth among industrials.
In a K-shaped consumer economy, the high end is doing well (low end doing poorly) and driving demand for airlines, travel and hotels, where companies have very good visibility on orders/bookings. Financials could see the benefit of capital markets strength, reinvigorated M&A activity and less regulation under the current administration. We’re also seeing a pick-up in lending that could continue alongside cyclical tailwinds.
One sleeper sector to call out is healthcare. It’s been a laggard but finally showing signs of life. Shares are discounted relative to their history and we have seen 80% of companies in this category guide upward, which is more than any other sector. The healthcare sector has a strong set-up, in our view, consisting of robust innovation, strong balance sheets, a demographic tailwind and easing policy concerns as companies begin to negotiate around pricing controls.
Everybody should be spending more time thinking about this question. One thing I find very interesting is the difficulty diversifying away from growth in general. Right now, it almost feels like why would you ever do that? But there will be a time you need to do it and yet value indexes are more growthy today than they have been in a decade. So, if you think you’re going to buy a passive value index to diversify away from growth, you need to think again and maybe consider an active value strategy that has value exposure against a value benchmark, if you will. Boiling it down, a passive index in value may not be giving you the exposure you’re expecting.
Value companies are typically trading at PE multiples below the market average. These may not be the faster-growing companies, but they have a bit of a defensive quality if we get into periods of volatility.
Some key areas have done well (even better than the U.S. in 2025) and we think are poised for continued strength. One of them is emerging markets (EMs). We saw 125 global central banks cut rates in 2025 and that includes some very large EM economies like Mexico and Turkey. Brazil is now seeing lower inflation, which opens the door for that country to follow suit. The U.S. lowering rates is also good for EMs, so we think some of these cyclical tailwinds can keep this trend in place.
In addition, there are frictions across the globe and the redrawing of supply chains continues. This is creating opportunities for some countries in particular. South Korea, for example, is becoming a powerhouse in battery and memory supply chain. Dubai and the UAE are expanding as a global financial center, which could bring investment into the area. Overall, a lot of exciting things happening.
We still like Japan, where the trend of decades of deflation turning to inflation continues. Over half of personal household assets are held in cash in Japan, so we think going from deflation to inflation will spur consumer spending, which will benefit both the economy and risk assets.
Beyond that, there is tremendous institutional reform pressure in Japan. We’re seeing that in corporate governance, in transparency and valuations of companies. Companies are streamlining operations, and this is all accruing to shareholders through better pricing of their stocks, better valuations and more cash and dividends being returned to holders of Japanese shares.
In closing, Ms. King reminds podcast listeners to embrace volatility and to take a long-term view, something she says is even more important in a hyper-AI-focused environment that could be a long yet volatile investment cycle as opportunities shift. “It’s inevitable that volatility will come,” she says, “but it provides the most fruitful opportunities for investors that are able to take a long-term view. So be comfortable with the uncomfortable.”
Earnings and PE figures cited herein are based on the S&P 500 Index with data from FactSet as of Nov. 30, 2025. Reference to value indexes includes the S&P and Russell 1000 Value indexes. Central bank rates from https://www.cbrates.com/decisions.htm.
Investing involves risk, including possible loss of principal. Investment in a specific sector can entail greater volatility given the narrower focus of the investment universe and concentration in sector-specific risks. Technology companies may be subject to severe competition and product obsolescence. AI technology relies on large data sets, which can lead to inaccuracies. Companies in AI face competition, rapid obsolescence, and depend on demand from various industries. Regulatory scrutiny could limit AI development, with data collection facing closer examination and potential fines. Country-specific regulations could also impact AI and big data companies. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or in concentrations of single countries.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 2025 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results.
Prepared by BlackRock Investments, LLC, member FINRA.
©2026 BlackRock, Inc. or its affiliates. All Rights Reserved. BLACKROCK is a trademark of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.
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